Integral Logistics Management — Operations Management and Supply Chain Management Within and Across Companies

2.4.2 Supply Chain Risk Assessment

Intended learning outcomes: Disclose the process for assessing supply chain risks. Explain FMEA and FTA techniques for assessing the probability of occurrence qualitatively or quantitatively. Describe FMEA and business interruption values techniques for assessing the business impact qualitatively or quantitatively. Present the supply chain risk portfolio.



Figure 2.4.2.1 shows the process of assessment of supply chain risks.

Fig. 2.4.2.1        Process for assessing supply chain risks.

The tools mentioned in the following come mainly from the area of product development and production management. They were adapted for use in supply chain management.

Probability of occurrence can be assessed qualitatively or quantitatively. For qualitative assessment, a suitable tool is failure mode and effects analysis (FMEA), as shown in the example in Figure 2.4.2.2. It is based directly on the risk catalog, and it is efficient and delivers useful results.

Fig. 2.4.2.2        Supply chain FMEA for qualitative assessment of the probability of occurrence of supply chain risks.

For quantitative assessment, fault tree analysis (FTA) can be used, as shown in the example in Figure 2.4.2.3. FTA can be costly, but it yields an in-depth understanding of causes and reasons. For further techniques, also see Section 18.2.4.

Fig. 2.4.2.3        Failure tree analysis (FTA) for quantitative assessment of the probability of occurrence of supply chain risks.

Business impact can also be evaluated qualitatively or quantitatively. For qualitative assessment, FMEA is again suitable, as shown in the example in Figure 2.4.2.4. Supported by event tree analysis (ETA), it is efficient and delivers useful results. For quantitative assessment, the business interruption value can be computed, the main components of which can be seen in the example in Figure 2.4.2.5. Experience has shown that the value depends strongly on one or two parameters, the values of which — similar to the case with qualitative methods — can be determined only imprecisely in practice.

Probability of discovery is not evaluated as frequently. Here see [Zieg07].

Fig. 2.4.2.4        Supply chain FMEA for qualitative assessment of the business impact of supply chain risks.

Fig. 2.4.2.5        Business interruption values for quantitative assessment of the business impact of supply chain risks.

In practice only relatively few risks can be examined, but these must be examined as in-depth as is necessary. The purpose of the risk assessment is to not expend money and effort in the wrong spot. Condensing the analysis results yields a supply chain risk portfolio.

The supply chain risk portfolioshows the supply chain risks on the two axes probability of occurrence and business impact, as shown in Figure 2.4.2.6.

Fig. 2.4.2.6        Supply chain risk portfolio.

In the example in Figure 2.4.2.6, risks K1 and L1 will require a lot of attention. Risk K1 has a high probability of occurrence and medium business impact. Risk L1 has a lower probability of occurrence, but it has very high business impact.




Course section 2.4: Subsections and their intended learning outcomes

  • 2.4 Supply Chain Risk Management

    Intended learning outcomes: Produce an overview on supply chain risk management. Explain the identification of supply chain risks. Describe the assessment of supply chain risks. Disclose how supply chain risks can be handled.

  • 2.4.1 Supply Chain Risk Identification

    Intended learning outcomes: Disclose the process for identifying supply chain risks. Present the depiction of the supply chain using the SCOR model. Describe the supply chain portfolio, suitable for risk management. Explain the supply chain risk catalog.

  • 2.4.2 Supply Chain Risk Assessment

    Intended learning outcomes: Disclose the process for assessing supply chain risks. Explain FMEA and FTA techniques for assessing the probability of occurrence qualitatively or quantitatively. Describe FMEA and business interruption values techniques for assessing the business impact qualitatively or quantitatively. Present the supply chain risk portfolio.

  • 2.4.3 Supply Chain Risk Handling

    Intended learning outcomes: Disclose the process for handling supply chain risks. Describe possible measures search fields for an example supply chain risk. Disclose how to evaluate the possibilities for action.